Good times roll on for banks, PSBs to top private peers on profit growth

Mumbai: The last quarter marked the goldilocks moment for Indian banking. On all performance indicators in the world of high finance – asset quality, credit growth, provision and buffers, and credit costs – Indian banks will have set stiff barriers to hurdle in the three months to December. All eyes will, however, be on near-term profitability trends as the rate-tightening cycle nears its peak.

An analysis by brokerage house

said private banks could report profit growth of 28% while the loans could rise upward of 18%. State-run banks, courtesy the lower base, will show optically higher profit growth at 44%.

“Earnings should remain healthy, aided by healthy business growth, NIM (net interest margin) expansion, and benign credit costs, even as opex could remain high due to continuous investment in business,” said Nitin Aggarwal, head, BFSI research,

.

“The recovery in loan growth is likely to continue; however, traction in deposits and any increase in the cost of funds would be key to assess the margin trajectory over the medium term.”

Analysts have forecast a core income growth of 23% for

, 27% for , 24% for and 24% for . could report a core income growth of more than 21% and a PAT (profit after tax) growth of 61% over last year, as per estimates.

Given robust system-level credit growth, banks are likely to report strong advances. System credit expanded 17.4% year on year as of December 2022. According to brokerage house Sharekhan, ICICI Bank could see loans climb 20% while Axis Bank could see loan growth of 16%, and Kotak Mahindra Bank could report 23% credit growth. HDFC Bank as per its provisional numbers has delivered advances growth of 19%.

“Loan growth across retail and SME segments continues to be strong, while the corporate loan segment is seeing a pickup, led by some capex demand,” says a Sharekhan research report. “Overall, deposit growth is expected to gain traction as deposit rates have risen sharply across banks over the past few months. Asset quality may improve further or remain stable for our coverage banks due to moderation in slippages, healthy recoveries, and upgrades across segments. We expect core credit costs to remain flat sequentially for most banks. Slippages from the restructured book would be the key monitorable.”

Unlike the September quarter, when most banks reported healthy margin uptick due to faster asset repricing, analysts say the December quarter could be a mixed-bag for NIMs as cost pressure begins to build up.